Fitch Upgrades Sri Lanka's Dialog to 'AAA(lka)', Outlook Stable

Rating Action & Commentary by Fitchratings

Fitch Ratings-Colombo/Mumbai/Singapore-08 October 2010: Fitch Ratings has today upgraded Sri Lanka's Dialog Axiata PLC's (Dialog) National Long-term rating to 'AAA(lka)' from 'AA(lka)', and simultaneously revised the Outlook to Stable from Negative. The agency has also upgraded the National Long-term rating on Dialog's outstanding LKR2.5bn redeemable preference shares to 'AA+(lka)' from 'AA-(lka)'.While Dialog's ratings factor in support from its parent - Axiata Group Berhad (Axiata, 83%
ownership) in arriving at the final rating, the upgrade reflects the company's improved stand-alone credit profile, and liquidity position. This is in turn a result of Dialog's successful cost rationalisation exercise, reduced tariff pressure within the local mobile industry at present (which is likely to allow further balance sheet improvements over the short-term), strong market share within the mobile industry amid improving economic conditions, and its improved operating cash flows.



Fitch assesses Dialog's standalone rating at 'AA(lka)'. A downgrade of the ratings could be precipitated by unfavourable developments within the local regulatory or competitive environment that would result in a sustained increase in Dialog's leverage (net
adjusted debt/EBITDAR) of above 2.5x, or by the weakening of Axiata's financial profile. Conversely, an upgrade of Dialog's standalone rating may result if the company is able to sustain leverage of below 1.5x, while maintaining an evenly spread out debt maturity profile.

 
Dialog's profitability as measured by EBITDAR margin improved to 41% at 30 June 2010 (end-H110), from 26% at end-2008 (FYE08), largely due to the 'right sizing' of its operations since early-2009. This included the centralisation of key administrative functions, better utilisation of network and office infrastructure, staff reductions, and network modernisation. The stronger operating cash flow generation that resulted, combined with lower levels of incremental capex, reduced group leverage to 1.7x in end-H110 (FYE08: 3.8x). 



"We expect Dialog's healthy EBITDAR margin, combined with modest revenue growth and relatively low incremental capex, to generate strong pre-dividend free cash
flow over the medium term" says Hasira De Silva, Associate Director with Fitch's Asia Pacific Corporates team. This, along with the management's commitment towards maintaining relatively low leverage levels, is likely to improve Dialog's ability to absorb competitive pressures over the mediumterm. 

 
Over 67% of Dialog's group revenue and 77% of EBITDA were derived from the mobile segment at end-H110 (December 2007: 84% and 94% respectively), which is prone to competitive pressures barring regulatory intervention at present. In Fitch's view, Dialog's alternative revenue sources are unlikely to eclipse cash flow generation from its mobile segment over the long-term.

 
The recently implemented regulatory tariff floor has curbed the erstwhile aggressive price competition within the mobile space, and may allow larger operators to de-leverage to an extent, or preserve balance sheet quality. 



"In our view, the local mobile industry is overcrowded, and therefore we believe that a
renewed price war cannot be ruled out should the floor be removed. This could continue to be a key risk to Dialog's operations over the medium-term" adds Mr. De Silva.
Dialog's liquidity position was sound at end-H110, with around LKR7.4bn of committed un-drawn credit lines (in USD) and LKR3.6bn of cash available, against LKR5.1bn of current maturities including preference share repayments. 



At end-H110, 65% of group debt was denominated in USD. Dialog has expressed its intention to maintain a sinking fund from its annual net USD receipts (H110 net receipts: USD17m), to help mitigate potential currency risk on the scheduled repayments of its USD debt, which fall due between 2011 and 2015.

Read more ...

Apparel exports to EU rise as Colombo loses tariff benefit

Bangladesh  is enjoying the benefits of the EU decision to withdraw zero-tariff from Sri Lanka, among other factors now boosting garment exports. Sri Lanka was supposed to enjoy the Generalised System of Preferences Plus (GSP+) status from the European Union, but it was withdrawn for the country's poor human rights record after its crushing of Tamil resistance.

The EU intends to make the formal move at the end of this month.



The GSP+ status gives 16 poor nations preferential access to the EU in return for strict commitments on a wide variety of social and rights issues.



Exports of readymade garments (RMG) blew past the state's target in the first two months of the current fiscal year, according to the latest data from the state-owned Export Promotion Bureau (EPB).



Bangladesh exported knitwear worth $1.6 billion against the $1.21 billion target in July and August, 31 percent up over the same period a year earlier.



During the same period, the country exported woven garments worth $1.31 billion against a target of $1.12 billion, up 17 percent from last year.



Ahsan Kabir Khan, managing director of Interfab Shirt Manufacturing Ltd, cited two reasons for the strong orders coming to Bangladesh, including recovery from the global recession.



"In the last year, buyers followed a conservative strategy in purchasing RMG products, and this year the actual business is returning," Khan said.



Second is the ongoing shift of orders from Sri Lanka, Pakistan and China to Bangladesh, he added. Orders, which were supposed to go to Sri Lanka, are now coming to Bangladesh, he said.



China has been suffering from shortages of low-wage workers, and Pakistan has faced widespread flooding, Khan said.



Part of the rise reflects the competitive level of RMG here.



"We're now taking shipments against orders which were placed earlier. This might be a cause for exceeding the target," said a Spanish buyer requesting anonymity.



But it is also true that many more international buyers are now placing orders in Bangladesh for its cheap prices, he added.



Source : The Daily Star - Bangladesh

Read more ...

Lanka’s official reserves exceed US dollars 7 bn

The gross official reserves of the country surpassed the US dollars 7 billion level on 4^th October 2010, a press communication by the Central Bank said.

This level of reserves is equivalent to over 6.8 months of imports and is the highest ever reserves level of Sri Lanka.

Read more ...

People’s Bank gets new CEO/Gen. Manager

People’s Bank today announced that former CEO/General Manager Mr. P. V. Pathirana has retired from his position and Mr. H. S. Dharmasiri has been appointed as the new CEO/GM of the bank according to the board's decision.

Mr. H. S. Dharmasiri, a student of Hokandara Vidyaraja College and Vidylankara Pirivena – Pannipitiya, joined People’s Bank as a Management Trainee, after having obtained both a first class B. A. Hons degree in Economics as well as a B. Phil degree with a first class from the University of Colombo. He has served the Bank in various capacities varying from the Branch Manager, to Asst. Regional Manager and Chief Manager etc. before serving as one of the Senior Deputy General Managers of the bank prior to this promotion. 

During his tenure he has acquired many professional qualifications including an AIB and also a diploma in Bank Management from the Institute of Bankers of Sri Lanka (IBSL). At present he is a Fellow of the Institute of Bankers (FIB) of Sri Lanka.

As a practical banker with experience in operational activities, credit, recoveries and even human resources, Mr. Dharmasiri has been serving in the governing board of the IBSL for many years now and is also a Director of Lanka Clear Co. Ltd.

Read more ...

Things happening reverse?

Zimbabwean man drugged, raped by gang of women

A Zimbabwean man has accused a gang of three women of kidnapping, drugging and raping him in the fifth sexual attack targeting male victims in under a year, a police spokesman said on Wednesday.



The 26-year-old man told police he was offered a lift in the southern city of Bulawayo but passed out in the vehicle after he was grabbed from behind and his face covered with a cloth.

He said he fell unconscious again after being given a substance that tasted like alcohol.

"After he woke up he was naked and the ladies took turns to rape him and abused him," police spokesman Wayne Bvudzijena told AFP.

The man told police he passed out after the assault but was later dumped by the women.

"The ladies also took his money, 300 US dollars, and cell phone," said Bvudzijena.

"The intentions by the three women are not clear but we suspect it could for ritual purposes," he said.

The incident Friday was the fifth such attack reported in several parts of the country, carried out by groups of women of varying size.

"It could be one or more gangs involved which is doing this. In all cases the victims are caught unaware and they are given drugs which makes them dizzy," said Bvudzijena.

"A docket for aggravated assault has since been opened in these cases."

The first attack happened last November when three women kidnapped an 18-year-old man, the state-run Herald newspaper reported.

In February, a group of four women forced a 25-year-old to have sex with them at gun-point.

Last month, a 44-year-old man, who was ordered to wear a condom, was targeted by two women while a man stood guard.

A 30-year-old man was also drugged by three women, two of whom had guns, and sexually assaulted.

Under Zimbabwean law, the charge of rape only applies to women victims. (AFP)

Read more ...

Fitch upgrades Sri Lanka rating, sees GDP at 7 % in 2010-2012

Fitch Ratings said on Wednesday it has affirmed Sri Lanka’s Long‐Term Issuer Default Ratings (IDRs) at ‘B+’ and has revised the Outlooks on both ratings to Positive from Stable, saying it see GDP growth reaching 7.2% in 2010-2012.

This, it said in a statement, is largely to reflect the economic benefits of post‐war transformation and IMF support. Both Outlooks were changed to Stable from Negative in October 2009 on account of the end of the 26‐year civil war and the approval of a $2.6 billion IMF Stand‐By Arrangement (SBA).

“In particular, the authorities have made headway in integrating the war‐torn Northern and Eastern Provinces into the rest of the economy, which will boost Sri Lanka’s productive capacity. Fitch is forecasting real GDP growth to average 7.2% in 2010‐2012 compared with an average of 5.1% in the previous 20 years,” it said.

Fitch said IMF support has lifted investor confidence that Sri Lanka’s macroeconomic policy framework will be tightened up. This has led to a pick‐up in private capital inflows into the country and, in turn, a rise in foreign exchange reserves. Fitch said it sees more evidence that the Central Bank has shifted the focus of monetary policy to fighting inflation from supporting growth.

“The authorities also appear ready to tackle the sovereign’s biggest ratings constraint, weak public finances. The country’s poor record of fiscal discipline is highlighted by both the budget deficit of 9.9% of GDP in 2009 and public debt of 86.2% of GDP, both well above the medians for the ‘B’ rating peer group. The end of the war provides the authorities flexibility to cut defence spending, which has typically accounted for over 15% of government expenditure. Equally vital, the formation of the Presidential Commission on Taxation last year signals that the authorities intend to reform tax policy. The government revenue/GDP ratio stood at 15% of GDP in 2009, which is well below the ‘B’ median,” it said.

Fitch said the Presidential Commission on Taxation is set to release its final recommendations before November 2010 and points out that though this is too late to help address the 2010 budget deficit target of 8.0% of GDP, new tax measures will be crucial in determining whether the authorities can ultimately meet their budget deficit targets of 6.8% of GDP for 2011 and 5.2% for 2012.

Read more ...

Sri Lanka to buy out Shell gas for US$63mn

The Government of Sri Lanka is to purchase the balance 51 percent stake of Shell Gas Lanka from Royal Dutch Shell plc (RDS) for 63 million US dollars, the government's information office said.

The balance 49 percent of the firm is also owned by Sri Lanka's government.

Following the move, RDS or commonly known as Shell - a global oil and gas company headquartered in The Hague, Netherlands will be exiting all of its Asian oil operations.

Shell had originally acquired the firm as part of a privatization drive. 

Read more ...